Updated: Spark Energy Reports Higher Earnings On Improved Unit Margins

Spark Ramping Up Organic Growth

May 7, 2019

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Copyright 2010-19 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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Note: An earlier version of this story was first posted at 4.19 p.m. on May 6. The story has been updated throughout with additional details from a 10-Q filed on May 7

Spark Energy, Inc. reported financial results for the quarter ended March 31, 2019.

Spark reported $25.1 million in Adjusted EBITDA, $56.6 million in Retail Gross Margin, and $2.7 million in Net Income for the first quarter of 2019 (comparisons to year-ago totals are below)

Spark's total RCE count was 865,000 as of March 31, 2019. That compares to a total RCE count of 908,000 as of December 31, 2018

Gross RCE additions in the quarter ending March 31, 2019 were 100,000 RCEs. Attrition was 143,000 RCEs.

During the first quarter of 2019, Spark added approximately 67,000 RCEs through various organic sales channels.

During the three months ended March 31, 2019 and 2018, Spark spent a total of $5.8 million and $4.3 million, respectively, on organic customer acquisitions.

Spark reported a, "successful ramp-up of organic customer acquisition."

During the first quarter of 2019 Spark added approximately 33,000 RCEs as part of its previously reported customer portfolio acquisition from Starion.

Average monthly customer attrition for the three months ended March 31, 2019 and 2018 was 5.4% and 4.2%, respectively. Consistent with Spark's previously communicated strategy to shrink its C&I customer book, customer attrition was slightly higher than the prior year because of its pro-active non-renewal of some of its large commercial contracts, in addition to some attrition caused by brand consolidations.

Spark said that its, "winter hedging strategy performed extremely well."

"We had a strong first quarter, with improved margins that were protected from extreme weather by our winter hedging strategy," said Nathan Kroeker, Spark Energy's President and Chief Executive Officer. "We integrated the Starion acquisition and are nearing completion of our brand and platform consolidation efforts."

"The significant year-over-year increase in unit margins from last winter to this winter was the result of a deliberate strategy that we implemented after last year's bomb cyclone to strengthen our hedging strategy, reduce our exposure to larger commercial customers, and refocus on higher-margin customers. We also achieved year-over-year improvements in G&A, and we expect to continue to see improvement each quarter for the rest of 2019," Kroeker said

Kroeker concluded, "We are seeing the benefits of our brand and system consolidations and improved customer mix. We are also ramping up our organic customer acquisition channels, while remaining disciplined on a cost per RCE basis. We expect to deliver strong Adjusted EBITDA for the balance of 2019 and for that trend to continue into 2020."

Spark reported Electricity Retail Gross Margin of $29.9 million for the first quarter of 2019, versus $19.7 million a year ago

Higher electric unit margins contributed $14.9 million to the improvement in Electricity Retail Gross Margin

Electricity volumes were 1.728 million MWhs for the first quarter of 2019, versus 2.252 million MWhs a year ago

Electricity Retail Gross Margin was $17.35 per MWh for the first quarter of 2019, versus $8.76 MWh a year ago.

Natural gas Retail Gross Margin was $26.6 million for the first quarter of 2019, versus $26.0 million a year ago

Higher natural gas unit margins contributed $3.1 million in higher Retail Gross Margin versus the year-ago, partially offset by lower volumes

Natural gas volumes were 6.951 million MMBtus for the first quarter of 2019, versus 7.677 million MMBtus a year ago

Natural gas Retail Gross Margin was $3.83 per MMBtu for the first quarter of 2019, versus $3.39 per MMBtu a year ago

For the quarter ended March 31, 2019, Spark reported Adjusted EBITDA of $25.1 million compared to Adjusted EBITDA of $15.9 million for the quarter ended March 31, 2018. This increase of $9.2 million was driven by higher Retail Gross Margin.

For the quarter ended March 31, 2019, Spark reported Retail Gross Margin of $56.6 million compared to Retail Gross Margin of $45.7 million for the quarter ended March 31, 2018. This increase of $10.9 million was primarily attributable to increased electricity and gas unit margins, partially offset by decreased electricity and natural gas volumes.

Net income for the quarter ended March 31, 2019, was $2.7 million compared to net loss of $41.8 million for the quarter ended March 31, 2018. The increase in performance compared to the prior year was primarily the result of decreased retail cost of revenues.

Spark's bad debt expense for the three months ended March 31, 2019 and 2018 was 4.2% and 2.6%, respectively, of non-purchase of accounts receivable market ("non-POR") retail revenues. Spark experienced higher bad debt expense in 2019 as a result of brand consolidations. In addition, as its geographic and acquisition channel mix has changed, its bad debt expense has increased. In order to manage this exposure, Spark has increased its focus on collection efforts in 2019, and focused on timely billing along with tighter credit requirements for new enrollments in non-POR markets.

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